Where Should I bank
Before I start, please note this is not personal financial advice and that investing involves your capital and you may get back less than what you put in.
The first question to sort out is where you’ll do your banking. The advent of online banking has made it possible in many cases to access your bank no matter where you go, but taxes and exchange rates may leave you wanting a local bank after you move.
Setting up a bank account may be difficult in your new home country until you have established residency.
Living overseas permanently you will need to eventually set up an account with a local bank. However, if you are only there temporarily and you are maintaining a US address, you may be able to get by using your stateside bank, depending on your banking needs.
One thing to keep in mind is the exchange rate. Some online services exist that allow you to transfer money from your US bank account to pay bills, and many will even provide you with a debit card for international use. The exchange rates using these services tend to be better than what you would see if you just used your regular US bank card.
Lastly, pay careful attention to reporting requirements when moving abroad from America. Anyone with foreign bank accounts with aggregate balances over $10,000 must report them to the US when you file your taxes.
What Should I Do With My Investments?
According to Morningstar on investor experiences around the world, the US ranks #1 in nearly every criterion, including regulation, disclosures, fees and expenses, sales and customer experience.
In short, if you can keep your investment accounts in the US, then you probably should. Of course, the final decision depends on the specifics of your situation.
After you move abroad, be wary of Passive Foreign Investments Corporations (PFICS) as investing in them can trigger additional taxes and reporting requirements. You’re probably better off leaving these alone entirely.
What About My 401(k) and IRA?
The most important point here is that except in rare circumstances, you should avoid cashing out these accounts, especially if you haven’t reached retirement age (59.5) and your 401(k) is over $500,000. If you cash out in those circumstances, your tax could skyrocket to 50% or more depending on your circumstances.
One option (and potentially the better one if you plan to return to the US permanently at some point) is to leave it in the US. As we said above, the American investment environment can’t be beaten, so if you can leave your accounts there, then that’s likely your best bet. You will need to tell your bank or brokerage that you are offshore, however, there are offshore accounts that accept expats and they are still based in the US.
That being said, if your expat status will be permanent, then you will probably want to roll your accounts into a retirement plan in your new home country. This option will depend on whether there is a tax treaty or not.
For example, if you are moving to Australia, you can roll your retirement plan into your superannuation fund, and there may be some significant tax advantages for doing so.
If you are moving permanently and you have a Roth IRA, consider making a full distribution from this account while you are still a US tax resident in order to take full tax advantage of this account.
The best approach for you depends on several factors, including your age, the size of your accounts, where you’re moving and whether your move is temporary or permanent. As in all cases, we recommend consulting with your financial advisor, preferably someone with expertise on the country to which you’re moving.
How Should I File My Taxes?
For the purposes of taxation, the IRS has two classifications:
- United States Persons – This is defined as a US citizen, US green card holder or anyone currently in the US who has been here for more than 183 days.
- Foreign Persons – This is a non-resident person who is not a citizen, does not hold a green card and has been here fewer than 183 days.
If you are classified as a US Person, you need to file US taxes, even after you move abroad.
You may be subject to additional filing requirements when moving internationally depending on the types of assets you have and your tax filing status. For example, foreign bank accounts with an aggregate balance over US$10,000, require that you file the FBAR.
Make sure to review your accounts with a professional before filing taxes as any oversights could be very costly. Failure to file penalties can easily exceed $10,000. Again, please seek qualified advice.
Should I Get a Financial Advisor in My New Country?
If you don’t have one, consider getting a financial advisor to at least help you navigate the transition between countries.
People moving across countries often wonder if they will need two financial advisors—one in their old country and one in the new. The rise of cross-border planning specialists can often solve this issue.
Ideally, you can find an advisor that specializes in cross-border planning between the US and the country to which you are moving. In some situations, you may need an advisor in both countries.
International Financial Planning Considerations
Real Estate
Depending on how long you’re moving away, it may be best to sell your US real estate holdings once you move away. Again, several factors go into this decision but unless the real estate investment is very cash positive, it usually does not make sense to hold.
Life Insurance
The cost of term life insurance tends to be lower in the US than elsewhere, especially in Australia. The death benefit is usually tax-free, which can be especially beneficial for US persons.
529
If you will have tuition expenses at a school that is covered by 529 accounts, consider paying tuition before you move. That will make it clear that you were a US tax resident when you made the payment, thus allowing you to optimize the tax advantage of the account.
Mind the Details
It may seem like a lot of details to remember, but it’s important that you understand the potential pitfalls of financial planning when moving between countries. Otherwise, you could end up with big financial penalties—or annoying little issues you’re still dealing with 10 years later.
There are several questions about estate planning, citizenship and tax codes to watch out for when moving abroad.
Other Considerations
Having a life that spans two countries comes with many perks, but it has its legal and financial complications, a major one of which is estate planning.
Estate Planning
Having assets in multiple countries—whether it’s retirement accounts or bank accounts or property—can complicate things considerably and leave you vulnerable to major financial penalties if you don’t approach them correctly.
Not only that, your will (and health care directives and power of attorney) may not even be valid in other countries.
For these reasons, when you’re preparing for life as an expat, one of the most essential members of your financial team will be a good estate planning attorney that’s familiar with international financial planning issues and what wills are recognized in which countries. You may want to consider getting an estate planning attorney in both countries to ensure they both have a deep understanding of their respective estate planning laws.
Dual Citizenship & Tax Issues
The unspoken theme we’ve alluded to throughout this guide is that when it comes to moving abroad, you want to move deliberately, not hastily. Case in point: dual citizenship.
Dual citizenship is an attractive prospect. You get to move freely between your home country and your new country. You and your children can enjoy full rights in both countries, which could mean anything from the right to vote to free college and health care, depending on where you’re moving.
But it’s not without its issues.
For instance, being a full citizen in two countries means you are under the tax laws of two countries. The US is one of only two countries in the world (Eritrea being the other) that taxes its citizens globally, no matter where you live. Most countries tax based on where you currently reside. US citizens and permanent residents are required to pay taxes on their income, no matter where they live and work.
Tax treaties have helped limit double taxation in many countries, Australia being one of them. But even with a tax treaty, the IRS still requires you to file a US tax return every year.
Summary
IF you are a US expat and you are finding it difficult to find someone to tak to about your finances, please do give me an email on info@investmentsforexpats.com. Services we offer for US expats are 401k rollovers and investments which are favourable to US expats and the tax reporting.
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